Wednesday 26 November 2014

Do I have to pay inheritance tax on shares left in will?

Oonagh Casey

Published 23/02/2014 | 02:30

Growth in European wages has slowed.
Growth in European wages has slowed.

My father passed away last November and under his will he left me a portfolio of shares. Do I have to pay inheritance tax on this – and if so, how much? - Gemma, Skerries, Co Dublin

Oonagh says: There are a number of things which will determine whether or not you have to pay tax. First off, you can inherit up to €225,000 from your parents tax-free. So if you have not previously received any gifts or inheritances from your parents since December 5, 1991, and the value of the shares left to you by your father is less than the €225,000 threshold, you will not have to pay tax.

If however you have taken any previous gifts or inheritances from either of your parents since December 5, 1991, you must aggregate that gift or inheritance with the current inheritance when determining whether or not you must pay tax.

So, let's say the shares are valued at €100,000. If that is the only gift or inheritance you have received from your parents since December 5, 1991, there is no tax due as you have not exceeded the €225,000 threshold.

However, say for example your parents gave you a gift or inheritance worth €150,000 five years ago. When you got this first, it did not exceed the threshold for gift and inheritance tax – and no tax had to be paid.

Now, however, when you aggregate the two gifts or inheritances, the total value comes to €250,000. This exceeds the €225,000 tax threshold for inheritances left by parents to a son or daughter by €25,000. You must pay Capital Acquisition Tax (CAT) at a rate of 33 per cent on this €25,000 – which will result in a tax bill of €8,250.

If the value of all gifts or inheritances received by you from your parents exceeds €180,000, you must file a CAT return with Revenue – even if you don't have to pay tax on the inheritance. This must be filed electronically and is due for submission by October 31, 2014.

QMy wife and I are planning to separate, and will probably divorce in a few years. We bought our family home jointly a few years ago – and my wife wants to buy out my share so she can continue to live in the home with our children. Will she or I be faced with any tax bill should she buy out my share of the home? And is there anything we can do to avoid getting hit with those taxes?

- Robert, Ennis, Co Clare

Oonagh says: This is a tough situation and not one you want made worse by a large tax bill. Spouses who are living together usually don't have to pay any capital gains tax (CGT) if one spouse buys out another's share of the home.

As you will no longer be living together, the married person's exemption from CGT will not apply when your spouse buys out your share of the home – but the exemption from tax can continue in two specific circumstances.

If your share of the house is sold to your wife in the year of separation, a tax bill should not arise.

If the sale occurs after the year of separation, you should not have to pay tax if the sale is part of an order under Part II of the Judicial Separation and Family Law Reform Act, Part II of the Family Law Act 1995, the Family Law (Divorce Act) 1996 or a Deed of Separation.

If the sale cannot take place in the year of separation, agreement on the sale must be included in the Deed of Separation to ensure that you don't trigger a CGT charge.

Oonagh Casey is a tax partner with the Dublin firm Fagan & Partners. She has specialised in tax for more than 21 years

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